THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JOHN DEFTERIOS, CNN ANCHOR, QUEST MEANS BUSINESS: Sky is the limit, the U.K. government backs opposition calls for Murdoch to drop his bid.

You can bank on us. Europe closes ranks ahead of major stress tests.

And cutting Cisco down to size. The tech giant says it is cutting 10,000 jobs.

I'm John Defterios in for Richard Quest. This, of course, is QUEST MEANS BUSINESS.

Good evening.

Rupert Murdoch's prize target is slowly moving out of sight as the U.K. parliament invited him in for questioning and turns against the deal for BSkyB. Sky shares sank after the British government said it would join with the opposition and urge against a News Corp take over. That might be the biggest hurdle yet to a deal that has been tarnished along with News Corp's reputation by a phone hacking scandal that refuses to die down. I spoke with Dan Rivers outside the British parliament and asked him what these developments actually meant.

(BEGIN VIDEOTAPE)

DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, this is an incredible U-turn from a government that has all along really wanted this take over to go ahead. And has now done a complete vault pass (ph), in the face of such massive public outcry over News International, generally, and the News Corp. take over of BSkyB, specifically. I think they just realized that they were behind the curve on this, that it was really just not acceptable anymore that this could be approved immediately. And that they-I think they just realized they were starring a possible defeat in the face. That they may have a massive rebellion on their hands for one thing if they didn't just go with the opposition on all of this.

It has been a day of really fast changing developments down here as well. Because not only has there been this kind of U-turn on the BSkyB takeover, but also Rupert Murdoch, his son James, and Rebekah Brooks have been asked to appear at a powerful parliamentary committee, down here as well, next Tuesday. Now we don't quite know if they are going to turn up. In fact, Rupert and James don't have to turn up, because they are not British citizens. But if Rebekah Brooks turns up, which she almost has to really, it is going to an incredible, an incredible few hours watching her being grilled by politicians in the same way that the police officers were grilled by politicians about this whole saga.

DEFTERIOS: Are we saying here that the leaders of the major three parties, here in the U.K., are closing ranks against Murdoch? Is that a fair comment tonight, though, Dan?

RIVERS: It is just such an amazing seismic shift in the political landscape and the media landscape. Because before this week, really, they were all united in their desire to cozy up to the Murdoch empire, really. It was seen as critical in winning an election, having Murdoch's press on your side. And particularly, "The Sun" newspaper, one of the most popular tabloids here. It was seen as critical having that support, in order to win an election. Now they all sort of rushing to get as far away from Murdoch as is humanly possible. It is quite amazing.

DEFTERIOS: We had testimony before the parliamentary committee and a former deputy commissioner suggesting that New International actually lied during the initial investigations. How did that go over down there?

RIVERS: Yes, I mean, they were not mincing their words. The police officers, today, in talking about the fact that News International had lied, had withheld information; have been as unhelpful as possible, basically, in preventing them from doing their job. Now there was an element of them trying to dodge some of the criticism that they bungled this investigation in the first place. That they didn't look at the bigger picture, that they narrowly focused it only on particular bugging of the royal family by certain individuals at News International and didn't look at the 11,000 pages of evidence that they had that contained lots of other names, like former Prime Minister Gordon Brown, for example. But there was an element of that, but certainly it has been (UNINTELLIGIBLE) of incredible evidence from the police officers, former and serving.

And now the woman in charge of the operation gave some interesting details about the current operation, looking into this, which is now much wider. She says they have 3,870 names in these notes of a former investigator, and 5,000 numbers of landline telephones, and in addition to that 4,000 cell phone numbers. So, you can gather how big this whole saga is. It is not just a few individuals. It is thousands of individuals involved.

For this latest development in the phone hacking scandal came just hours after Rupert Murdoch tried to stop the slide in News Corp. stock price. The company announced a plan to buyback an extra $3.2 billion of it shares. Brining its buyback scheme to a total of $5 billion. Analysts see that as a way for News Corp. to give its own share price a boost and that is exactly what happened at first, shares jumping almost 3.5 percent. Those gains have already been erased, however. Now shares are essentially flat, up around a fifth of 1 percent, at $15.51 per share, in New York trading.

Well, as the scandal grows and the share price falls, News Corp. has lost, believe it or not, almost $7 billion in its market cap overall. We'll get more on the implications for News Corp. later in the program from Alex Degroote, he's a media strategist at Panmure Gordon, to talk about the share buyback and its further implications.

In a moment, crisis management in the Eurozone, tense meetings in Brussels and a sharp turn around for Italian stocks. All the drama of the debt crisis in Brussels, coming up. Stay with us.

(COMMERCIAL BREAK)

DEFTERIOS: Policy makers are practically pegging out the safety net. Members of the ECOFIN, the European Economic and Financial Affairs Council, met in Brussels today. They say they'll provide a backstop for banks which fail the EU's latest stress test. The results are out, of course, on Friday.

Finance ministers from the 17 countries in the Euro are also moving to contain the debt crisis. Ministers are working a second bailout for Greece. They say they want to reduce the cost of the overall Greek debt. Greece, tonight, said it wouldn't accept any deal which involves a partial default. The president of the European Council, Herman Von Rumpuy, says policy makers are focused on protecting the financial health of the entire Eurozone.

(BEGIN VIDEO CLIP)

HERMAN VON RUMPUY, PRESIDENT, EUROPEAN COUNCIL: We have also discussed the overall situation in the Euro area. I'm fully aware of the current tensions in the debt markets. But let me be very clear that there is a very strong commitment at the highest level to do whatever is necessary to safeguard the financial stability of the Euro area. Leaders have to raise above their domestic, political agenda and they will. Proposals of the Euro group, or measures that will resist contagion risk in the Euro area are urgently needed.

(END VIDEO CLIP)

DEFTERIOS: The market would agree with that. The leaders of the 17 nations in the Euro may call it an emergency meeting on Friday. Italy is holding emergency talks already. It follows a rout in financial markets and a spike in its borrowing costs on Monday. Prime Minister Silvio Berlusconi wants austerity measures to be, quote/unquote, "accelerated" to combat fears of overall Italian debt. Mr. Berlusconi's words helped to soothe nerves in Italy, along with a successful but pricey bond option. Jim Boulden has more on the market response today.

We saw the interest rates creeping up, but they crossed the hurdle by selling everything they put on the market.

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: And if you stop watching the markets after the first couple of hours you'd be very surprised at some of these numbers. Because it has been a dramatic day for turnarounds

Well, Italian stocks started the day down, sharply down, almost 5 percent. But you can see here the market actually closed up more than 1 percent. That is because the Italian government did hold a successful debt auction. 12-month T-bills did run to about 3.67 percent. The 10-year bond fell back below 6 percent. Now, this bond was one and a half times over subscribed. That is not great. But in this current climate not bad either.

Now, the bank shares were down sharply again, in the morning, just like they were yesterday. Union Credit, the biggest bank, shares down nearly 7 percent. But recovering strongly, complete opposite here. You can see ending up nearly 6 percent higher. You can look at that at the bond auction. You can also say it is because there maybe a lot of talk. You know, we are getting these-some of the bank stress tests later this week and maybe some of the pressure easing off a little bit. So we saw European bank shares doing pretty well toward the end of the day, especially, in Italy.

The dollar has been very interesting to watch with the pressure of the euro. We saw the euro drop below $1.40, hit a four-month low against the dollar. Now hovering around $1.40. Still down for the day and certainly off what we saw last week. But you remember when we get the height of the Greek crisis and Italian-sorry, the Irish crisis, late last year. We saw it much, much lower than that.

Let's look at how the markets ended the day. So even though we saw the Italian markets ending higher. The main markets really couldn't recover. The FTSE 100 down more than 1 percent, the others down less than 1 percent, but I will say this is way off the lows for the day, John.

DEFTERIOS: It is interesting, Jim, we have talked in the past about this North/South divide, the growth in the North of Europe and the sluggish nature and the debt in the South. We seem to have a divide here on whether we should default on some of the private investments of the banks and the major pension funds, and the insurance companies. The Greek finance minister, Mr. Venizelos, said tonight, we will not sign on to a partial default deal. He doesn't think that the Greek banks can manage that. The Dutch are saying they should. Angela Merkel, of Germany, says they should. This is the big divide.

BOULDEN: Because you have the North-as you said, the North/South. Now why can't Greek handle this? Well, of course, this idea is that if there was this selective default, the ECB would say, wait a minute, that is a default. We will not cover Greek debt. We will not be giving loans to Greek banks. Greek government says we can't handle that. There seems to be a theory going on the last couple of days: Maybe we should let Greece have a selective default to stop the spread, the contagion going elsewhere. That is completely different from what people were saying just a few weeks ago.

DEFTERIOS: Yes, it sounds like the European Central Bank will be the lender of last resort.

(LAUGHTER)

Jim Boulden for us on the Italian story and the EU debt story.

There was some talk today, in fact, that the European Central Bank intervened in that sale of Italian bonds. Earlier I spoke with Marco Valli, chief Eurozone economist at UniCredit. He told me he didn't believe the rumors in the markets.

(BEGIN VIDEO CLIP)

MARCO VALLI, EUROZONE CHIEF ECONOMIST, UNICREDIT: First of all, I don't think that there was direct intervention in the Italian government bond market. I think that most of the relief came following a relatively OK BFT (ph) option which reassured the market that demand for Italian paper is still there, despite all the turmoil that has been going on in the financial markets over the last few days.

DEFTERIOS: It is interesting in that government bond auction ended late (ph), the interest rate at 3.67 percent is quite a big higher than just a month ago. Is this the new reality for Italy?

VALLI: I don't think so. I think that these yields reflect some panic selling over the previous trading sections. I think that Italian fundamentals do not justify this spike in yields. Actually, Italy does not have a big problem with private sector leverage, which is one of the main weaknesses of the other peripheral countries.

Yes, we do have a growth problem and a high debt to GDP ratio, but overall, I think that Italian fundamentals are certainly much better than they are in peripheral countries.

DEFTERIOS: So, you are categorically saying, Marco, that Italy will not have a problem servicing the $250 billion of debt in 2011-12?

VALLI: No, I don't think that we are going to have any major problems. Probably we will have to pay a higher interest rate. But (UNINTELLIGIBLE) given the current turmoil, eventually when it comes to solvency of the country, I think that we cannot think about Italy getting into that-it is a too systemic a player for having it get into serious trouble. And I have no doubt in case of market speculation continuing, the European Union and the ECB would find a solution for Italy. Italy is just too systemic to have it succumb to speculation.

DEFTERIOS: Well, let's see if we can clarify this. What is the solution from the ECB in the EU, if this contagion continues?

VALLI: I think mostly it will have to come from the EU. The European finance ministers have to quickly agree on a package on Greece, which clarifies to what extent they really want to involve the private sector. Until we have more clarity on this I'm afraid that the market tensions will remain and therefore a significant compression of Italian spreads is unlikely.

However, I do expect the finance minister to react to the current situation. Realize that the situation is increasingly looking like widespread contagion and there is no time to loose. So I do expect them to step up with a clear solution in the next few weeks.

DEFTERIOS: Finally, the Greek finance minister, Mr. Venizelos, said that Greece would not accept a partial default. Basically, he is looking for coverage of the Greek banks who have about $100 billion of exposure to the Greek market alone. Is that realistic on his part?

VALLI: Obviously, there are different interests at stake. Germany is pressing very hard for private sector involvement and so is doing the Netherlands. I think that eventually one possible solution is that they find the right compromise is to increase the size of the EFSF and allow more flexibility in order for the fund to start buying government bonds on the secondary market.

This would allow for some private sector involvement, because banks would sell their holdings of (UNINTELLIGIBLE) below purchase value, but at the same time will not trigger CDS (ph), and will not determine a default event.

(END VIDEOTAPE)

DEFTERIOS: Once again, Marco Valli joining us this evening from Milan.

Well, stocks are on the upside after sharp losses on Monday's Big Board. Let's take a look at where the Dow industrials are now. Traders are still worried about that debt crisis. Overall, the Dow industrials now crossing up 50 points, at 12,558. Cisco shares the biggest gainers so far, on reports of job cuts. We'll have more on that later in the program. But they are going to be slicing at least 10,000 jobs.

On the Nasdaq, News Corp. shares have rebounded in the past few minutes; up almost a 0.5 of 1 percent now. A $5 billion share repurchasing plan gave its shareholders some much needed good news today. Earlier I spoke with Alex Degroote, a media analyst at Panmure Gordon. I asked him what Murdoch was trying to achieve with the big news on the buyback.

(BEGIN VIDEOTAPE)

ALEX DEGROOTE, MEDIA ANALYST, PANMURE GORDON: Ordinarily any buy back is a sign that a company thinks its own stock is undervalued. The stock has been weak, so it is a response to that. Additionally, such a quantum of step up in buyback may indicate that he's pushing back his expected timeline on the completion of the Sky competition review.

DEFTERIOS: This is the real challenge because public attention may last three to four months depending on the individual or the company. But the long arm of the law could go for what, 12 to 18 months, if the U.S. gets involved, Australian authorities get involved, U.K. legal authorities?

DEGROOTE: That's right. We are into uncharted territory. I find it impossible to assess with any real accuracy what the time line is there.

DEFTERIOS: Now, can you say this is a wise strategy to sell all the newspaper assets to preserve the purchase of Sky in the U.K.? Is it that valuable, to take a risk to sell the remaining newspaper under News International?

DEGROOTE: In simple profits terms, the newspaper assets are very small scale. Very small bare compared to BSkyB, the pay TV broadcaster. Secondly, don't forget it would address the issue of media plurality to some extent. Because, of course, you would be shrinking your number of voices in the U.K. market; specifically your print voices, in favor of your one big holding, the pay TV voice.

DEFTERIOS: He's a shrewd operator, Rupert Murdoch. And he has pulled rabbits out of his hat in the past, for example, when purchasing "The Wall Street Journal". What do you think he's going to do? What are you advising your investors right now?

DEGROOTE: Right now, at this level we think Sky is effectively at fair value, around 700. We think nearly all the bid speculation has come out of the price. The stock price peaked at about 860, it has fallen almost 160 pence, sterling terms, back to 700. At these levels we think it is becoming an interesting entry level. But investors should be aware that we are into uncharted territory as far as, what we said, about the number of outcomes that are now possible.

DEFTERIOS: How about a so-called, white knight, if you will, at least another bidder coming to the table. They were talking about John Malone (ph), of Liberty.

DEGROOTE: Right, right.

DEFTERIOS: Who has had tensions with Rupert Murdoch in the past?

DEGROOTE: Right.

DEFTERIOS: Do you see another buyer coming in, saying I love this idea that it could produce profits of $1.5, $1.6 billion next year?

DEGROOTE: It is clearly attractive. I mean, as far as the operating stats are concerned, this company is superb. We would expect its full year results, which are due in the next 10 days, to be very positive. We expect the outlook to be pretty positive. Their lock on the U.K. market, as far as U.K. households is very impressive. The company is pretty well invested. Nearly all the metrics point very nicely in the right direction, in the right space, subscription pay TV. So, yes, it would be attractive to anybody. And that is why it is attractive to News Corporation.

DEFTERIOS: But do you think Murdoch is going to give up the battle for this, or is it just too dear?

DEGROOTE: Absolutely not. It is dear to his heart. And it should be dear to the News Corp investors, as well.

(END VIDEOTAPE)

DEFTERIOS: Once again, Alex Degroote of Panmure Gordon, here in the U.K.

We have some news coming out of the Federal Reserve Board, in the U.S., minutes of their meeting ahead of the appearance on Capitol Hill tomorrow, Mr. Bernanke. It says in the minutes, even a temporary default on U.S. debt would send financial markets into a tailspin. That is a message from one end of Washington, to Capitol Hill, about the debt talks taking place between U.S. lawmakers and the White House, right now.

This sparked a jump in gold prices to another record, at $1,562 an ounce. The interpretation of the minutes went on with perhaps a look at maybe more stimulus from the Federal Reserve not to worry about and deflate the growth the U.S. economy.

So, once again, gold at a record $1,562, on the comments from the Federal Reserve warning that even a temporary tailspin, or temporary default, would put the markets into a tailspin.

You are with QUEST MEANS BUSINESS. Just ahead the newest member of "The Boss" team, our first billionaire is gearing up for a big opening. Last week Francis Lui talked about humility, tonight hear why it is all about great expectations.

(COMMERCIAL BREAK)

DEFTERIOS: Here on QUEST MEANS BUSINESS we spent the past eight months trekking continents, searching out the secrets of successful CEOs. Tonight, what keeps a business leader awake at night? For one, our first billionaire, who based in Macao, the devil is in the details. And for our U.K. chief executive, it is all about growing the brand, on "The Boss".

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Previously on "The Boss", rethinking her customer. Sarah Curran raises the bar as she looks to target the male customer.

SARAH CURRAN, CEO, MY-WARDROBE.COM: If I take a decision, it is something that I completely believe it is the right thing to do. It is not just a whimsical risk.

UNIDENTIFIED MALE: And in Macao, a new boss, with a new mission, and plenty of confidence.

FRANCIS LUI, VICE CHAIRMAN, GALAXY ENTERTAINMENT GROUP: I'm a visionary person, where I can see the long-term future of the company.

UNIDENTIFIED FEMALE: As you see, this is one of those-

UNIDENTIFIED MALE: The pressure is mounting for our new boss, Francis Lui. In less than a week his new casino resort, the Galaxy Macao, will open to the public. And before it does, he is making sure everyone is ready. Today he is meeting with the team responsible for training his butlers.

UNIDENTIFIED MALE: Good to see you.

LUI: Good to see you.

UNIDENTIFIED MALE: As the vice chairman of the company, he expects high standards. He knows in this industry it is all about the details.

LUI: What are the major things that we want to concentrate on?

UNIDENTIFIED FEMALE: What I'm concentrating on, really, is making sure that grooming is absolutely at the top, because that is what people are expecting from butlers.

LUI: I believe I will be the rah-rah person to make sure that all our staff is pumped up, all our staff is getting ready for the big opening day. I think a lot of us are very excited, but at the same time everybody is still a little bit worried that, you know, how are they going to perform.

UNIDENTIFIED MALE: Despite the nerves, Francis is maintaining his high expectations.

LUI: I think a really good butler is you should anticipate what the customer needs.

UNIDENTIFIED FEMALE: Yes.

LUI: And actually have the act done and (UNINTELLIGIBLE).

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: With more than 60,000 visitors expected on the opening day, and with over 1,600 rooms to service, the butlers will be under huge amounts of pressure. That is when their months of training will be put to the test.

LUI: We have 8,000 staff working for us now in Galaxy Macao. Most of the staff has been recruited for three months before they start working here. And for three months they will be all intensive training.

UNIDENTIFIED FEMALE: Do you see on the right hand towel there.

UNIDENTIFIED MALE: Oh, I see.

UNIDENTIFIED FEMALE: It looks like there is a hand print there. It just needs to be just neatly, done up lightly.

UNIDENTIFIED MALE: Sure.

UNIDENTIFIED MALE: So far, Francis likes what he sees. He is confident his butlers will be up to the huge task. Whatever problems should arise, he knows he can count on his trusted team of managers.

UNIDENTIFIED FEMALE: But we need to look after them.

LUI: I know that I'm running a big operation is here in Galaxy. And I know that I cannot do everything by myself, even though I wanted to, but that is not a way how a business should be run, how organizations should be run. So, I like to say that I like to be a support, I like to encourage my people to do whatever they feel is the best for the company.

CURRAN: Just showing up to walk around. Can we move onto our (UNINTELLIGIBLE)

UNIDENTIFIED MALE: Aye.

UNIDENTIFIED MALE: With the introductions out of the way, Sarah Curran gets down to work. And for her, this means powering ahead with My- Wardrobe's global expansion. Her aim? To grow the new pool of customers and do it fast.

CURRAN: We are a small team, the business is growing, really, really quickly. So we need someone who is-there is a good balance. Someone who has the experience, but equally who is prepared to roll up their sleeves and help drive the business very, very quickly.

UNIDENTIFIED MALE: To do this at this accelerated pace, she is expanding her executive team.

UNIDENTIFIED MALE: Purely (UNINTELLIGIBLE), yes.

UNIDENTIFIED MALE: New to the club is Rob Moss, the former head of marketing for online travel agency Lastminute.com and now My-Wardrobe's marketing director.

CURRAN: When it comes to areas such as the marketing, I have-with the team, I've been able to bring us to where we are today, but actually now is the time to bring an expert in, which is why Rob is here.

UNIDENTIFIED MALE: Getting here wasn't easy, though. With a small and relatively young marketing department, Sarah had to try and test several candidates.

CURRAN: And online marketing is far more weighted towards a lot of data analysis. And so, Rob coming from an econ background is perfect. It is irrelevant that his background is not in fashion, because we have experts. And to be honest, he's an intelligent guy, he gets it very quickly.

UNIDENTIFIED MALE: Sarah is a boss in a rush. She gives Rob little time to settle in. Luckily for her, he shares her vision and her drive for growth.

ROB MOSS, MARKETING DIRECTOR, MY-WARDROBE.COM: I've got a high level of autonomy. And with that the comes a high level of expectation of what the company expects of me. And which is great, that is exactly how I like to work.

UNIDENTIFIED MALE: Next week on "The Boss", two bosses with two distinct marketing strategies. In London, Sarah's new edition reveals his plan to attract new customers. And in Brooklyn, Steve Hindy taps New York's iconic designer Milton Glazier (ph) to help grow his brand.

(END VIDEOTAPE)

DEFTERIOS: Default is not an option. The U.S. Treasury secretary says it is time to put on speed to solve the debt deadlock. And the man who runs the world's biggest bond fund, couldn't agree more. Hear what they have to say, next on QUEST MEANS BUSINESS.

And this weekend, CNN begins a "Going Green" special event. Environmentalists and CNN Special Correspondent Philippe Cousteau takes us on an unforgettable journey to a land of extremes, and some important research on climate change. "EXTREME SCIENCE" airs Saturday night at 9:00 p.m. in London, 10 p.m. in Berlin, at midnight in Abu Dhabi. You can participate in a live chat on Facebook with Philippe. Go to Facebook.com/CNNinternational, for more details. Then post your comments and questions as the show airs on Saturday night.

(COMMERCIAL BREAK)

DEFTERIOS: Welcome back.

I'm John Defterios and you're watching QUEST MEANS BUSINESS.

Here's your headlines at the bottom of the hour.

Rupert Murdoch's British newspaper company is denying allegations involving former British Prime Minister Gordon Brown. News International says its "Sun" newspaper never accessed the medical records of Brown's son nor did it commission anyone else to do the same. The company adds that "The Sunday Times" believes no laws were broken during the investigation of Brown's purchase of a flat.

The half-brother of Afghanistan's president has been murdered by one of his own security guards. Ahmed Wali Karzai, the Kandahar provincial council chief, was reportedly shot during a gathering at his home. Other guards then gunned down the shooter. His motive is unclear at this moment, but the Taliban says he was working for them.

Pakistani authorities have detained a doctor suspected of working with the CIA as the agency closed in on Osama bin Laden. According to "The Guardian" newspaper in the U.K., he was recruited to run a fake vaccination program in Pakistan and gather DNA evidence from Bin Laden family members. There's no comment so far from the CIA.

Four people are facing serious criminal charges in Russia for the boating accident that killed dozens of people on Sunday. The head of that company that leased the vessel has been detained, as well as a river transport official. And two ship captains are accused of passing the sinking boat without stopping.

The U.S. Federal Reserve is out with a warning, even a temporary U.S. debt default could clobber the financial markets. And another warning -- we need a deal by next week at the latest. That's an urgent message today from the U.S. Treasury secretary. Timothy Geithner says he's confident the U.S. debt ceiling will be raised by the August 2nd deadline. Otherwise, the U.S. will not be able to pay its bills.

(BEGIN VIDEO CLIP)

TIMOTHY GEITHNER, SECRETARY OF THE TREASURY: It's very important for investors here in the United States to understand and to recognize that the U.S. will act in advance of the limit we face, where our borrowing runs out on. And we are working very hard -- and we could use some support -- in raising the odds of doing a long-term, substantial deficit reduction agreement that will be good for the economy in the long-term. And the president is going to continue to work toward the largest possible agreement, because that's what's best for the economy long-term and that's what's best for the economy.

(END VIDEO CLIP)

DEFTERIOS: In the short-term, as he finishes there.

Lawmakers were back on Capitol Hill this Tuesday. President Obama is to meet with Congressional leaders a little bit later, after pledging yesterday there would be meetings every day until the debt dispute is solved.

Federal Reserve Chief Ben Bernanke will make an appearance on the Hill Wednesday to discuss the economy. Lawmakers are expected to question him about his views on the debt deadline and the sputtering U.S. economy.

Even as the U.S. Treasury secretary says default is not an option, there's still no sign of compromise.

She started by asking how a potential U.S. credit downgrade could ripple far beyond the borders of the United States.

(BEGIN VIDEOTAPE)

MOHAMED EL-ERIAN, CEO, PIMCO: We have an economic system globally that is constructed on the basis of a strong core. And in the middle of this core, at the center of the center, is the AAA credit rating of the United States.

So the AAA credit rating holds together all sorts of things in the global system. If somehow we end up losing that AAA status, then we will see a lot of realignments that can be very, very costly. That is why this is such a big issue. The system is not built for uncertainty about the credit standing of the AAA, right. And that's why it becomes the land of the unpredictable. We simply do not know how the global system will operate without the AAA at its center.

POPPY HARLOW, CNN BUSINESS CORRESPONDENT: You now have Europe's third largest economy in peril, major questions still about Portugal being downgraded by Moody's just last week.

Is this just showing us that, indeed, what happened in Greece was not isolated, that this is, indeed, a contagion that we need to fear across the eurozone?

EL-ERIAN: You know, I've been saying all along forget the -- the image of kicking the can down the road. Think of the image of rolling a snowball down a hill. Two things happen when you do that. First, the snowball gets bigger. And the problems in Europe are getting bigger. And secondly, the snowball starts getting disorderly. You start losing control of the snowball. And that's what's happening in Europe.

The failure for the last year-and-a-half to deal with Greece, which has a debt problem and a growth problem, the failure to deal with Greece has meant that contagion has increased. And today, we're seeing what are called a mini meltdown in Europe.

HARLOW: A mini meltdown?

EL-ERIAN: It's a mini melt -- it's a mini meltdown in the sense that you're getting a very disorderly sell-off in virtually every asset. It's across the board.

And people are scratching their heads, saying what -- well, why today?

And the reason why is that you've had these questions building in the system, building in the system and people are starting to lose confidence in policymakers' ability to control outcomes. And that is something that is very risky for Europe and the European Union and the ECB have to get back in control quickly.

(END VIDEO TAPE)

DEFTERIOS: Which they hope to do by Friday.

Mohamed El-Erian of PIMCO talking to Poppy Harlow.

Well, the pressure is easing on Italy tonight, as borrowing costs head a little bit lower. Today's debt auction was a show of confidence in the country, even though it was one of the highest debt burdens in Europe, at 120 percent of GDP.

Andrea Robosco is the head of trading services for Italy at IG Markets here in the UK.

And he joins me now.

Andrea, it's nice to have you on QUEST MEANS BUSINESS.

Welcome to you.

ANDREA ROBOSCO, IG MARKETS: Good evening.

DEFTERIOS: Yes, I want to talk to you about the bond auction. Everybody is pretty happy that it went off. But it's at a much higher in the region than we would have seen even a month ago.

What were people saying on the trading floor about the ability for the government to push through some $56 billion of near -- near-term cuts?

ROBOSCO: Well, actually, as we can see from the Fotomate (ph) this morning, actually, the auction went pretty well. I mean the -- the auction managed to place like $6.7 billion. The yield was higher than the one in June. It was 3.67 percent compared to the 2.14 percent in June.

So the cost of financing is increasing overall, we would say that it's pretty successful. What is really important is it's basically the first time that the ECB is basically, in part, raising the Italian bonds in order to -- to stabilize the cost of financing for Italy. So it's -- this is the first time for the ECB and it's a -- it's a good way, basically, to stabilize the cost of financing and has been acceptable well by the market.

DEFTERIOS: The debt levels in Italy are not new. I'd like to see if we can clarify tonight why the sudden onslaught on Italy in the last week, when we've had a debt to GDP ratio of above 100 percent for the last 18, 20 years?

Why now?

ROBOSCO: I think the market has punished the Italian politics, basically, and the Italian politicians, the leaders, as well. What we are seeing right now is basically the implementation of new reforms that are pretty -- if you want to say, like shy. So the -- the -- what the market wants is now try reforms that is going to cut more expenses, that is going to affect more the -- the public companies, that is going to improve the productivity in Italy.

If we compare Italy to a corporation, we can actually say that Italy is the country with the biggest balance sheet, because we've got the lowest level of household debt, great income from private investors, but low GDP. So like really low growth in terms of GDP.

So what we need to do is new reforms in order to increase the country's productivity.

DEFTERIOS: It's interesting, you hit the nail on the head here, Italy is not growing. It's not growing at the level it did in the 1990s. I mean .5 to 1 percent growth will not allow you to service your debt. And I don't see anything in the cards that's going to allow them to grow fast again.

Now you'd agree with that?

ROBOSCO: I certainly agree. If you -- if you look at the last decade, we see like an average from 2000 to 2010 of a GDP growth of about .2 percent, where all the other countries in the European Union average maybe 1.1 percent. So certainly a lax of growth. And we've got some fundamental problems.

As I was saying, I wouldn't compare Italy to other countries like Spain, Greece or Ireland. We still have a solid balance sheet within -- and we still have a lot of savings. And most of the bonds are held by the -- by the Italian citizens. So they are not -- they won't, in my opinion, be subject to so much speculation in the -- in the next future.

But still, I think the Italian politicians and the leaders of the European Union and the -- at the European level, they should do more in order to increase the productivity of the country and to -- to basically accelerate the growth of the country.

DEFTERIOS: OK, a final point here. We have the stress tests coming on Friday.

Any surprises from Italy?

And are you really concerned that Giulio Tremonti, the finance minister, would exit?

I guess this is a kind of two part question here.

Is that a big concern of yours, as well?

ROBOSCO: Well, I think there has been a kind of -- a kind of argument between the prime minister and the -- the finance minister, Tremonti. But I think it's now being sorted. The main argument was about a little covenant in the new austerity measure regarding the CIO Group and the -- and basically a dispute between the company of the Italian prime minister, Silvio Berlusconi, and the payment of a big sum of money, like more than $200 million, to these -- to this political company. And well now it has been sorted. And I think the main focus is going to be to sort out this crisis at -- at the budget level. And I think both of them want that. And so I -- in -- in a certain way, I think there is now a kind of crising -- crisis between the two.

DEFTERIOS: OK. We'll have to leave it -- leave it there.

Andrea Robosco joining us today from IG Markets.

Thanks a lot for your time.

ROBOSCO: You're welcome.

DEFTERIOS: Looking at the debt situation, of course, in -- in Europe.

Believe it or not, there are some countries growing out there, from the Middle East to Far East Asia. Israel's economy could be set for big things in 2011. We'll hear from Stanley Fischer on what challenges really lie ahead, right after the break.

(COMMERCIAL BREAK)

DEFTERIOS: Well, it's certainly in stark contrast to the situation in Europe. Israel's central bank expects the country's economy to grow by more than 5 percent this year. And it's raised interest rates six times in the past 12 months to try to keep a lid on inflation.

I asked the Bank of Israel governor, Stanley Fischer, if the cycle of interest rate increases was, indeed, coming to an end.

(BEGIN VIDEOTAPE)

STANLEY FISCHER, GOVERNOR, BANK OF ISRAEL: We don't think we've gone far enough. Our inflation rate is still above the target range of 1 to 3 percent. We're at about 4.1 today. And so we're probably going to need to put on the brakes a little bit more to get that inflation rate down to the range we should be in.

DEFTERIOS: You've seen your currency go up about 14 percent in the last year and 40 percent of the economy is based on exports. So as you raise interest rates, it strengthens the currency and undermines the exporters. But you're still growing at 5 percent.

Why are you able to sustain the growth?

FISCHER: We ask ourselves that question. If you look at the data, at least through the end of the first quarter of this year, exports have stayed remarkably strong. Of course, all the time we're wondering whether that will continue. And so we monitor this very carefully.

Exports have been weak the last couple of months. But that's also a global phenomenon. So we still don't know whether that's the currency or whether that's the global economy.

In any case, this is something we have to monitor very carefully.

DEFTERIOS: Isn't your biggest challenge right now kind of trying to stop the hot money coming into Israel that wants to latch onto the growth and the higher interest rates?

FISCHER: Yes, I mean mostly it's latching onto the higher interest rates. We're getting an inflow of very short-term money. You know, if the interest rate is 3.75 percent and it's between 0 and .25 in the United States, there's money to be made. So that is a problem and that causes the currency to strengthen. There's no terrific tool against that. We've tried a variety of things.

We are thinking about doing some more along those lines. We've just introduced a reporting requirement so that we know who's moving money in and out. The government has equalized the taxes that are paid. It used to be that foreigners paid less tax on Israeli short-term bonds. Now it's equalized.

So we're doing things, but none of them is decisive. And we're -- the real answer will be that the rest of the world gets healthy and interest rate gaps get smaller.

(END VIDEO TAPE)

DEFTERIOS: Once again, Stanley Fischer of Israel's central bank.

Let's get you up to date now on a fast-moving turn of events all day long with regards to News Corp. The British coalition government will vote in favor of a parliamentary motion by the Labour opposition calling on News Corp to withdraw its bid for BSkyB. This is coming from a Downing Street source, telling CNN this evening.

Again, another turn of events with the now ruling government calling for a vote against the bid by BSkyB.

Let's get an update on the European weather scene and go to CNN International Weather Center and to Jenny Harrison -- good evening, Jenny.

JENNY HARRISON, CNN METEOROLOGIST: Hello to you, John.

Yes, some more stormy weather to talk about. It's been a couple of weeks now we've seen these systems coming in from the west. And look at this in the last few hours -- some really ferocious storms have been erupting across areas of France, pushing into the southern and central areas of Germany, you can see here on the radar. Those dark red areas, the yellow indicating where we've seen some of these thunderstorms.

And as I say, there is more of this to come. But there's also some warnings in place because of it. Not surprising, we see some of these literally on Tuesday, some of the wind gusts that have been around, 102 kilometers an hour and 100 kilometers an hour. And you can see exactly where they are in the north and that west coast of France.

And so there is likely to be some more of that in the forecast. The next area of low pressure, the one bringing in the -- the storms right now, that's on its way across into the central areas and, again, there is the threat of some severe weather. So Tuesday into Wednesday, the warnings out across the south for more of the same -- large damaging hail, some strong winds, as well. I think well, as usual, heavy rains.

And then as the system moves further eastward, so these warnings also shift in line with that.

As for Tour de France, heading for the south, of course, getting closer to the Pyrenees all the time. This particular stage on Wednesday, 167.5 kilometers. Another day, though, where we could see some thunderstorms and some showers, quite a bit of clouds. And the elevation is a little bit higher. You can see here, the temperatures between about 16 and 20 degrees Celsius. So hopefully not a hot day for the riders there.

You can see those thunderstorms, though, working their way as I said, across into those central areas. And temperatures a little bit cooler in the west -- 19 in London, 18 Celsius in Paris and a very warm 35 degrees in Rome.

Meanwhile, across in Asia, still some very heavy rains pushing in particular across toward the Korean Peninsula a couple of days now of really torrential amounts have been adding up there.

And also, we're watching this -- a new tropical storm. For the moment, it's quite a way out in the West Pacific. But the winds have just got up to that tropical storm strength, 65 kilometers an hour. But it's going to continue to straighten. But as I say, for the time being, for the next couple of days, it's actually well out into these open waters. You can see it here on the forecast for the next couple of days.

And then you'll notice that very heavy rain again working its way up toward the Korean Peninsula. Now, we've already had mud slides and land slides across the region. And so with this continuing, it is likely that we are going to see more of the same. And it really is adding up again.

And remember that these totals are falling onto already some very saturated ground. So across much of North Korea, at least 80 to 100 millimeters and in some cases getting closer to 200.

So we've got that area with the heavy rains and still, as we go through Wednesday, the threat of more heavy rain across areas in the east. And the temperatures, of course, fairly high this time of year -- 32 in Beijing and 31 Celsius across in Tokyo.

But the heat is really in place across the south of the United States. Scattered showers and thunderstorms. And that means that right now, Atlanta is in -- or on a grand stop. Elsewhere, we've got a few more storms.

Here are some of the temperatures from Monday. But, unfortunately, that heat really will stay in place for the next few days. Dangerously hot temperatures, up to 40 Celsius. And, of course, you've got to factor in the humidity -- John.

DEFTERIOS: Almost catching up with the Persian Gulf.

HARRISON: Yes.

DEFTERIOS: Thanks very much.

Jenny Harrison at the CNN International Weather Center today.

Cisco just wants to be loved. The tech giant may be about to take some drastic action to rekindle its old romance with Wall Street. We're live in New York with that story.

(COMMERCIAL BREAK)

DEFTERIOS: Once a darling of Wall Street, Cisco could now be gearing up to slash about 14 percent of its workforce.

So what happened to the once pioneering tech giant that used to buy about 50 companies a year?

Things have changed a little bit now.

Let's go to the New York Stock Exchange a little bit later for the update with Alison Kosik.

First, Felicia Taylor.

What Cisco is trying to do here.

Did they venture into the consumer market?

This is a strategy that's now backfired for John Chambers.

What's -- what's the story?

FELICIA TAYLOR, CNN CORRESPONDENT: You hit the nail on the head. That's exactly right. Basically, some analysts I spoke to today said that Cisco has kind of wandered off the path. It sort of lost the plot. They didn't stick to what they know best, which are switchers and routers. They didn't innovate and differentiate. That opened the marketplace for others to come in. And that's the competition. You've got Juniper, Alcatel, H.P. And they've really taken away some of their -- their significant market share.

What they need to know now is whether or not they're going to be able to get that top line growth back. We're going to get more details about these job cuts that we're hearing about. And if it is at the top end of 14 percent, that's quite significant. That could be up to 10,000 people losing their jobs on August 10th. That's the next time we're going to have this call with Cisco. And we'll get more details like I said.

But the stock is cheap. I mean it -- it's lost considerably, although Wall Street likes what it's hearing today in terms of these job cuts. I mean it's a shame, obviously, that, you know, people -- thousands of people may lose their job in order for the stock to get a pop, but that's kind of the way Wall Street works. It needed to see about a billion dollars in cuts in order to buy it time to have a little leverage and time to get that top line growth back into place -- John.

DEFTERIOS: You know what it's like in Silicon Valley. You've traveled through there. And you know that the rumor mill is that John Chambers had Steve Jobs' envy in the sense that the innovation that was coming out of Apple, he wanted to emulate at Cisco. And he did it for years and years and years. But it was just a mis-focus is what is sounds like.

TAYLOR: You know what's interesting is I asked that very question. I sort of made that comparison of Apple to -- to Cisco and what's been happening in the marketplace to an analyst. And he -- he sort of saw what you and I are seeing in the sense that Apple continues to innovate and differentiate its product and stays ahead of the curve. Certainly, Apple has competition out there. But Cisco hasn't been able to stay as the leader in the marketplace.

The other thing that's happening is there's sort of a mixed shift to lower priced switchers and routers. They're actually hurting themselves by being able to -- to lower price those things which and Juniper have been able to do ahead of them. So that kind of mixed shift into another sector, which is substantially lower priced has, in a way, taken away some of that margin and growth. And that's part of the problem that they're going to have to overcome as well -- John.

DEFTERIOS: OK. Thanks very much.

Felicia Taysha -- Taylor joining us from New York tonight.

Well, jobs aren't the only cause for concern in the U.S., with those job cuts from Cisco. The nation's trade deficit widened in May to its largest level in nearly three years. The Commerce Department says the U.S. imported $50 billion more than it exported in that month. The main culprit was the imported oil bill, which really packed a punch, of course. Some economists now predict the trade gap could narrow because the oil price has come up a little bit from that century mark.

Right now, let's get to the New York Stock Exchange, where Alison Kosik is standing by watching the Wall Street action.

Yesterday, we talked about the debt talks in Washington, the debt talks in Europe. No real clarity, but enough for the market to move forward, at least.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Exactly. And do you know what, stocks are mixed right now and we'll take it compared to the big drop yesterday. But those concerns are still there that you mentioned, John. You know, take your pick, the lousy jobs numbers, the worries over Greece and Italy defaulting on their debt, worries that the U.S. will default if its debt limit isn't reached -- isn't raised soon.

As for Italy, a promise that austerity measures will be fast-tracked, that's what's keeping a lid on the losses in the markets. Today, the Italian finance minister saying that the budget cuts that were scheduled to be passed in August will be passed this Sunday. So that really has calmed down the markets.

Earnings from Alcoa not really exciting the market today. But what did execute the marvet -- the markets very briefly were something from the -- the Fed policy meeting that had came out about an hour ago. And officials had indicated, a possible QE3, that they could be ready to provide more monetary easing if the recovery is too sluggish, to lower the unemployment rate and if inflation eases.

This is very different from Fed Chairman Ben Bernanke, from what he said, who had given no indication, at least as of last month, that there would be no more stimulus coming from the Fed.

But it is interesting and it certainly has taken up the discussion again about QE3, just to see the officials talking about it in their minutes -- John.

DEFTERIOS: In fact, it was -- is that the interpretation from the minutes ahead of Bernanke's testimony on Capitol Hill tomorrow?

That -- is that how they read those minutes today, as another -- another round of stimulus coming out of Washington?

KOSIK: Well, these are the minutes that coincided with its policy decision at the end of June. And what's interesting is that now that the Fed -- now that Fed Chairman Ben Bernanke is having press conferences, even in his press conference, he gave no indication that this -- this discussion was even happening.

So the fact that it was -- it was discussed in its meeting, because it came out in these minutes, that definitely piqued the interest of -- of investors here on Wall Street -- John.

DEFTERIOS: It's -- it's fascinating to hear.

What are we expecting to hear from Bernanke that's different from what Geithner said today, saying that there is no other option with the $14 trillion of debt, they do need to walk away with a deal, not even a partial delay in making payments to raise that ceiling.

KOSIK: I think you're really going to hear the same. You're going to hear the same drumbeat over and over about how vital it is that this debt ceiling is raised, that -- that the deficit is taken care of. I think that what you're going to see is what Geithner suggest -- Geithner, you know, the Treasury secretary Tim Geithner came out today saying that he wants to see a deal by next week.

So, you know, we're seeing more and more the push coming from these government officials that something has to be done soon -- John.

DEFTERIOS: OK. We'll leave it there.

Nice to see you again.

Alison Kosik at the New York Stock Exchange, on a day where we had sharp losses yesterday and some leveling off before the testimony tomorrow on Capitol Hill.

And that is QUEST MEANS BUSINESS for this evening.

I'm John Defterios sitting in for Richard.

"PIERS MORGAN TONIGHT" is just ahead, following a look at the day's headlines.